Pairs trading : En studie på den svenska aktiemarkanden, 1995-2004

by Karlsson, David

Abstract (Summary)

Pairs trading is a relatively new trading strategy, the strategy has only been used during a couple of decades. A study made on the American stock market has shown that the strat-egy has generated a positive result. The purpose of this thesis is to investigate if pairs trad-ing has been able to create a positive result on the Swedish stock market during the time period of 1995-2004.The data required for this thesis was collected from Stockholm stock exchange and is ad-justed for splits and issues.The pairs trading strategy involves two stages – identification of pairs and trading signals. The pairs were identified during a period of 12 months. During this period a return index was constructed and a correlation matrix was calculated for each period. Out of this corre-lation matrix were then ten pairs with the highest correlation selected. These pairs were then used in the next six-month trading period.The study show that the strategy generated a positive result for the time period examined 1995-2004. More than 60 percent of all positions had a positive development and contrib-uted to a positive result. The other positions had a negative development.